New boss Alberto Zaccheroni watches from the stands.
The South Americans eliminated their Asian opponents on penalties in the first knockout round in South Africa.
They were beaten on this occasion by a Shinji Kagawa strike in the 64th minute, with new boss Alberto Zaccheroni watching from the stands after his appointment earlier this week.
Paraguay had chances of their own but failed to convert any of them after a bright start by the home side.
Japan captain Yuji Nakazawa saw his header saved on the stroke of half-time, Jonathan Santana going close after the break.
It was Kagawa though who opened the deadlock, latching onto Kengo Nakamura's pass before seeing his effort from outside the box go in off the post.
The Asian giants held onto their lead and have the chance to build on a morale-boosting victory when they take on Guatemala on Tuesday, Paraguay set to face China.